The biggest challenge facing Indian clean-energy projects is the high cost of finance, according to a wind-farm developer founded by General Electric Co.’s former regional chief.
Tax-free bonds, credit enhancements and partial loan guarantees are among the options that India’s new government needs to consider to deliver on targets to double renewable capacity to 55 gigawatts by 2017, said Tejpreet Chopra, chief executive officer of Bharat Light & Power Pvt.
Borrowing costs of about 13 percent “make any infrastructure project difficult,” said Chopra, who left his role at GE in 2010 to start the developer based in Gurgaon, near New Delhi. “We need to be a little more creative to attract the capital we need.”
Prime Minister Narendra Modi, who swept to power on May 16, has pledged a clean-energy revolution to end blackouts. An obstacle to that is the highest interest rates among Asia’s biggest economies, which have prompted India’s worst lending slowdown since 2009.
Bharat Light, which is backed by Draper Fisher Jurvetson, will need to raise about $800 million to fund plans to quadruple its capacity to about 800 megawatts over the next few years, said Chopra. “The good thing is sentiment is getting much, much better,” with the new government.
Funding renewable projects with government-backed green bonds could lower the cost of clean power by as much as 25 percent, according to an April report by the Indian School of Business and San Francisco-based Climate Policy Initiative, which calculated that high interest rates add as much as 32 percent to the cost of clean power in the nation.
Developers such as Bharat Light and Morgan Stanley-backed Continuum Wind Energy Pte. are maximizing the amount of power generated by wind farms by doing away with a system under which turbine makers built and operated projects for investors. Chopra estimates about 15 of India’s 21 gigawatts of wind capacity was built for investors buying projects to claim accelerated-depreciation benefits.
“Generally, most of the plants built to claim tax benefits are running sub-optimally,” Chopra said. “You can improve the efficiencies a fair bit.”
Bharat Light bought one of India’s largest wind farms from indebted property developer DLF Ltd. last year. It has been able to reduce turbine downtime by as much as nine percent thanks to a system set up with International Business Machines Corp. that collects machine data to predict failures.
The system is also allowing Bharat Light to forecast power generation, he said. The Central Electricity Regulatory Commission last year ordered wind farms to start predicting their day-ahead output within a 30 percent band and plans to fine those who can’t comply. Developers including Tata Power Co. and Goldman Sachs Group Inc.’s ReNew Wind Power Pvt. have protested, saying that’s impossible and that fines would wipe out profits in an industry that has drawn about $10 billion of investment 2011.
“What the government is asking for is very fair,” Chopra said. “We’re already beating it internally.”